Fitch Rates Weber County, Utah GOs 'AAA'; Outlook Stable
--$10.3 million GO bonds, series 2016.
Fitch has also affirmed the following ratings:
--$37.9 million GO bonds, series 2013 at 'AAA';
--Issuer Default Rating (IDR) at 'AAA'.
The Rating Outlook is Stable.
The 2016 GO bonds are due to be sold competitively on Aug. 18, 2016. They are the second and final issuance under the county's 2013 bond election to fund county library capital projects.
SECURITY
The 2016 GO bonds are general obligations of the county payable from the proceeds of ad valorem taxes levied, without limitation as to rate or amount, on all taxable property within the county, sufficient to repay fully each year's principal and interest amount.
KEY RATING DRIVERS
The 'AAA' GO bond ratings and IDR are based on the county's exceptionally strong gap-closing capacity and strong reserves. These result from the county's solid revenue framework, ample spending flexibility, and low long-term liability burden.
Economic Resource Base
The county is situated approximately 35 miles north of Salt Lake City and covers 662 square miles, with its major population areas located at the foot of the northern Wasatch Mountains. It is the fourth most populous Utah county with an estimated 2015 population of 243,645. After hitting a high 9% in 2010, the county's unemployment rate dropped to 4% in May 2016, in line with the state (4.2%) and below the national rate of 5.1%. The county's mixed economic profile is characterized by below-average per capita money income, but above average median household income and a below-average individual poverty rate. This likely reflects larger family sizes, a relatively young population, and the county's below-average educational profile.
The county's taxable assessed valuation (AV) took an almost 9% hit during 2010-2012, primarily due to residential property value declines. Subsequently, taxable AV has more than rebounded by 23%. The county is experiencing ongoing commercial sector investment, new residential development, and rising property values.
Revenue Framework: 'aa' factor assessment
Post-recession general fund revenues have slowly but steadily grown as a result of new development and expansion within the county's well diversified economy.
Expenditure Framework: 'aa' factor assessment
General fund expenditures have been growing at a faster rate than general fund revenues but ample spending flexibility remains. Pension system contribution costs have stabilized and the county's other post-employment benefit (OPEB) plan is closed.
Long-Term Liability Burden: 'aaa' factor assessment
The long-term liability burden is low relative to the county's economic resource base, and Fitch expects it to remain low.
Operating Performance: 'aaa' factor assessment
The county has exceptionally strong gap-closing capacity and maintains a strong unrestricted general fund balance, augmented by good reserves and borrowable funds outside the general fund. The county budgets conservatively.
RATING SENSITIVITIES
The rating is sensitive to shifts in fundamental credit characteristics including the county's low debt profile, strong financial management practices, and diversified economy. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
CREDIT PROFILE
The county employment market is dominated by Hill Air Force Base (its location straddles both Weber County and adjacent Davis County), government, education (including Weber State University which has 25,000 students), health care, and a significant manufacturing presence. The county seat is Ogden City, and there are 14 other municipalities.
Revenue Framework
The county's general fund revenues are dominated by property taxes (34%), charges for services (33%), and sales taxes (15%). Since a recessionary revenue decline in 2010, total general fund revenues have grown by approximately 8% through 2015 (excluding accounting changes). There were no property tax rate increases during that time.
The historical rate of growth has been slow and steady, in line with inflation. Fitch expects continued steady revenue growth resulting from underlying economic activity, particularly relating to new construction and rising sales tax collections. The county's tax rate adjusts with AV fluctuations to produce a stable levy plus an allowance for new construction. This automatic adjustment limits the ability to benefit from appreciation in the tax base but also provides valuable downside property tax revenue protection.
The county has the legal ability to raise property tax rates following a mandatory truth-in-taxation public hearing. The county will be conducting such a hearing on Aug. 15, 2016 to consider a property tax increase to be implemented in 2017. The proposed 25% increase to the county portion of the tax levy rate would generate $8.2 million annually, with approximately $7 million for employee salary and benefit increases (to ensure competitive remuneration, particularly for law enforcement personnel) and the balance for capital projects.
Expenditure Framework
The county consistently keeps its general fund expenditures below revenues, but there is expenditure growth pressure particularly related to salaries and benefits (approximately 70% of its spending) and capital needs.
The county has traditionally focused on managing its head count during recessionary periods but it also has the option to seek greater employee contributions towards health benefits. The county's ability to manage its personnel expenditures relative to available resources is facilitated by the very flexible labor environment within which it operates. However, during the current period of economic growth, remaining competitive has become an issue particularly for law enforcement personnel retention.
Long-Term Liability Burden
The county's long-term liability burden (overall debt plus unfunded pension liabilities) is low relative to its resource base at about 4% of personal income. Fitch expects the ratio to remain low, although more than two-thirds of the liability related to overlapping debt which can be difficult to predict. Approximately half of the county's direct debt is funded from an unlimited property tax levy restricted to this purpose. Direct debt amortization is moderate at approximately 54% in 10 years. The county does not plan to issue new debt in the foreseeable future apart from private placement of up to $10 million in sales tax bonds for county transportation projects. The privately placed bonds will be repaid from monies already programmed in the county's transportation fund that will become available in fiscals 2017-2019. While the community is very tax sensitive, voter support for the 2013 library bond measure proved more than sufficient at 54%.
The county benefits from participation in the well-funded Utah Retirement System. Participants' contribution rates increased significantly in recent years as the system absorbed recessionary investment losses, but contribution rates have now stabilized. The county makes its full actuarially determined contributions annually. The Fitch-adjusted net pension liability represents only a small portion of the county's overall debt profile.
The county offers OPEBs only to employees who joined the county before Jan. 1, 2008. The benefits, employer contributions, and employee contributions are governed by county policy and can be amended at any time. The OPEB unfunded actuarial accrued liability is modest. The county expects to continue funding OPEBs on a pay-as-you-go basis.
The county guarantees repayment of $17.7 million in special assessment bonds it issued in 2013 to pay for public infrastructure improvements to privately-owned land adjacent to Powder Mountain ski resort. (The 2013 bonds are not rated by Fitch.) The county expects these bonds to be repaid fully by special assessments collected from a private development company and the owners of developed lots. In the event that this does not occur, the county's liability is limited to an easily absorbable $1.5 million per year annual debt service (representing 2.3% of 2015 general fund revenues). Fitch's debt calculations conservatively include the 2013 bonds.
Operating Performance
The county exhibits exceptionally strong gap-closing capacity and has conservatively budgeted to maintain financial flexibility through economic cycles, without material expenditure deferrals. During the recession, the county used attrition, vacant positions, personnel expenditure controls, and departmental cost cutting to good effect, only experiencing a very small general fund net operating deficit after transfers in 2010.
Following general fund drawdowns in 2013 and 2014 related to partially reimbursable property purchases, the county ended 2015 with a small net operating surplus after transfers (0.7% of spending) and a strong unrestricted general fund balance of $13 million (19% of spending). The county is on track to meet its 2016 general fund revenue forecasts and expects to end the year with another small net operating surplus after transfers.
The healthy general fund results are augmented by good reserves available for liquidity outside the general fund, the ability to shift parts of the county's tax rates to the general fund if necessary, and the automatic property tax levy adjustment mechanism which offsets AV declines.
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